Most Frequently Asked Questions About Taxes
Filing taxes is the responsibility of every employee and employer to stay in good books with the CRA. If filed correctly and promptly, it can result in quick refunds. It’s also beneficial to work with a professional to gain further savings.
However, when it comes to taxes, there are many questions clients have but often find answers difficult to come by. Therefore, Darren Bruce, CPA, Professional Corporation, wants to arm you with the most accurate information to help you make informed decisions. To do this, we’ve answered some of the most frequently asked questions about taxes.
1. Can I deduct "__________"
The Income Tax Act (Canada) is very clear about what you can’t deduct but less clear about what you can deduct. Generally speaking, as long as the expense was incurred to produce income, it should be deductible. The Canada Revenue Agency (CRA) expects taxpayers to be “reasonable” in determining whether an expenditure is business-related. There are specific exclusions such as some types of clothing, fifty percent of meals and entertainment that taxpayers or their advisors must be aware of when filing.
2. Can I pay my child?
Yes, you can pay your child a “reasonable” rate for work performed. The CRA and the courts have determined that “reasonable” would be an amount of pay similar to what would be paid to a non-family member/friend. Likely the child would be exempt from Employment Insurance (EI). Extra care should get taken when paying a child. For example, don’t pay ‘lump sums’ but rather pay based on hours worked and have clear notes or time cards to support the hours worked.
3. Should I buy the vehicle through the business or personally?
It’s a great question and requires a thorough analysis. There are many considerations, including the type of vehicle, value of vehicle, GST/HST, and deductibility of the cost in the corporation. In addition, the number of kilometers driven for business versus personal, the income of the person using the vehicle, and the tax cost resulting from the taxable benefit and liability to the corporation are also essential factors to consider. There is no easy rule of thumb for this consideration. It’s best to call our office to explore what is best for your unique situation.
4. Should I incorporate?
Unless you become self-employed to have a ‘job,’ you should consider incorporating. It has several benefits including, deferring taxes, saving taxes, limiting liability, allowing for tax-efficient succession planning, and keeping your business separate from you. Yes, there is a cost to incorporating, but it can get easily outweighed by the extra tax savings. Call our office to see if incorporating will be beneficial for you.
5. I want to sell my corporation. Now what?
We regularly help clients sell their businesses. It’s an exciting time for any entrepreneur and can be a little uneasy at the same time, but leave the details to us. You can feel confident that the transaction will be smooth and tax-efficient. There are several things to consider in the early stages, the selling price, the Non-Disclosure Agreement, are shares getting sold, or is the corporation selling its assets? As the process gains traction, we need to determine how much information should get provided to the prospective buyer. Should a Letter of Intent be obtained? How many people will you offer the business to at one time? Are you willing to hold the debt for the purchaser, or will you require full payment at the closing date? Each transaction is unique, and we would love to help you.
We hope these answers made you feel more confident about filing your taxes. If you have any more questions about taxes, get in touch with the experts at Darren Bruce, CPA, Professional Corporation. We are a CPA firm in St. Catharines, Ontario, we provide tax and accounting services to small and medium-sized businesses.
Our services include accounting, bookkeeping, payroll, tax planning/ preparation, and financial planning. We serve clients across St. Catharines, Niagara Falls, Toronto, Markham, Vaughan, Hamilton, and Mississauga. We also cover Brampton, Kitchener, Burlington, Oakville, London, Barrie, Oshawa, Huntsville, and the surrounding areas.